Tuesday, May 18, 2010

Natural Gas Price $4.38/MMbtu May 18, 2010

By Moming Zhou
May 17 (Bloomberg) -- Natural gas futures rose to the highest price in more than two months on speculation that hot weather will increase demand for electricity from gas-fired power plants for air conditioning.
Temperatures will be above average in most of the Midwest and the East Coast from May 22 through May 26, according to MDA Federal Inc.’s EarthSat Energy Weather. Gas rose 7.4 percent last week on signs of stronger demand from industrial users.
“The weather is factoring in as more gas will be used for air conditioning,” said Tom Orr, director of research at Weeden & Co., a brokerage in Greenwich, Connecticut. “Economic data in the U.S. have been indicating a recovery and it’s good for gas.”
Natural gas for June delivery rose 8.6 cents, or 2 percent, to settle at $4.398 per million British thermal units on the New York Mercantile Exchange, the highest closing price since March 12. The futures have risen 12 percent this month.
The temperature in New York will be 7 degrees above average on May 21, according to EarthSat, based in Rockville, Maryland. The city will have a high of 83 degrees Fahrenheit (28 Celsius) that day and Philadelphia will have a high of 83 degrees.
Industrial production in the U.S. rose 0.8 percent in April, the most in three months, figures from the Federal Reserve showed on May 14, indicating factories are powering the economic recovery.
Factory Demand
Purchases of gas by manufacturers, steel mills and chemical plants fell by 7.7 percent in 2009, according to the Energy Department. Industrial demand, which accounts for 28 percent of total U.S. gas consumption, will increase 5.5 percent this year, the department said in its monthly Short-Term Energy Outlook last week.
Total gas consumption will increase by 3 percent to 64.4 billion cubic feet per day this year, the Department said.
“We are seeing some leftover momentum from last week,” said Peter Beutel, president of trading adviser Cameron Hanover in New Canaan, Connecticut. “Funds are getting out of long positions in oil and refined products and getting out of short positions in natural gas.”
Crude oil for June delivery dropped $1.53, or 2.1 percent, to settle at $70.08 a barrel in New York, the lowest settlement price since Dec. 14.
Rigs drilling for natural gas fell for the third time in four weeks, dropping by two to 951 last week, according to Baker Hughes Inc. The count had risen for 16 consecutive weeks before dropping in the week ended April 23.
Gas Rigs
The decline in the number of rigs is “confirming that drilling efforts have stabilized and may start moderating sooner than we had expected,” James R. Crandell, an analyst at Barclays Capital in New York, said today in a note to clients.
The number of rigs is likely to decline to 850 by the end of summer, according to Cameron Horwitz, an analyst at SunTrust Robinson Humphrey Inc. in Houston.
“It’s heading in the right direction to eventually set the conditions to bring supply more in line with where demand is,” Horwitz said.
U.S. gas stockpiles gained 94 billion cubic feet to 2.089 trillion cubic feet in the week ended May 7, the Energy Department said last week. Analysts had forecast an increase of 102 billion. An inventory surplus narrowed to 18.4 percent above the five-year average from 18.8 percent the prior week.
Wholesale natural gas at the benchmark Henry Hub in Erath, Louisiana, rose 7.05 cents, or 1.7 percent, to $4.3373 per million Btu, according to data compiled by Bloomberg.
Gas futures volume in electronic trading on the Nymex was 263,090 contracts as of 3:44 p.m., compared with a three-month daily average total of 233,000. Volume was 286,623 on May 14. Open interest was 870,734 contracts, compared with the three- month average of 844,000. The exchange has a one-business-day delay in reporting open interest and full volume data.
--Editors: Bill Banker, Richard Stubbe
To contact the reporters on this story: Moming Zhou in New York at Mzhou29@bloomberg.net.
To contact the editor responsible for this story: Dan Stets at dstets@bloomberg.net.

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